‘Credit relief bill infringes on judicial power’

The Executive Branch disapproved the credit relief bill for Commonwealth Development Authority’s delinquent borrowers partly because it violates the doctrine of separation of powers.

In particular, the bill would infringe upon and interfere with the powers and duties of the Judicial Branch because it would set aside judgments entered by courts, said acting Gov. Diego T. Benavente in a transmittal veto letter on Senate Bill 14-48 sent yesterday to House Speaker Benigno R. Fitial and Senate President Joaquin Adriano.

Benavente said that Section 1a of the bill defines that among those “qualified borrowers” for the relief are those whose debt “has been reduced to judgment.”

“In other words, the parties having proceeded through the full panoply of due process required by foreclosure proceedings, and the creditor having obtained a judgment of the court on the debt, the Legislature would, under the terms of this bill, set aside and refashion it, and substitute its own judgment for the judgment of the court,” Benavente said.

He said that the CNMI Constitution mandates that no single branch of the CNMI government may infringe upon the powers and duties delegated to another branch of government.

In the letter, Benavente also cited the bill’s unconstitutionality as it impairs the obligation of contracts.

Such prohibition against impairment, he said, is one of the cornerstones of a market economy.

“It essentially guarantees that government will not interfere with lawful private agreements. This principle will apply even if one of the parties is a governmental entity such as CDA,” he said.

The contracts entered into between CDA and the borrowers that were valid at the time of their execution cannot be abrogated or impaired by a subsequent act of the Legislature, he said.

Lastly, Benavente cited that the measure, if passed, would seriously undermine the fiscal integrity of CDA.

CDA, he said has lent over $34 million to 214 borrowers since 1985. The amount currently in default is over $8 million.

He said that, although CDA has cited a default rate of over 80 percent, if default was computed using commercial banking procedures, the rate would only be 38 percent.

And although the agency has been lenient with borrowers for many years, he said that it has recently begun to more aggressively pursue collections. With its work, CDA may be able to begin making new loans within the next six months. The agency stopped its business loan program four years ago due to the high delinquency rate.

Benavente said the bill would essentially wipe out CDA’s ability to make future loans to stimulate economic development.

Further, Benavente said that CDA, which acts as guarantor to a variety of commercial loans held by private banks, guarantees $13 million and holds only $7 million in reserve.

“Insolvency would be the likely scenario,” he said as borrowers, by defaulting, would come under the financial jurisdiction of CDA and take advantage of the relief provisions.

Benavente also said such situation would adversely affect the flow of federal funds to the CNMI.

CDA currently receives, holds, and invests all Covenant 702 funds.

“Any significant erosion of the fiscal integrity CDA will reduce credibility in our fiscal responsibility that we have worked so hard to achieve and may affect the amount of funding the CNMI receives in the future,” he said.

“As a matter of public policy, which requires that the Commonwealth’s banking and investment arm, CDA, maintain the highest degree of fiscal integrity, I am obligated to veto this measure,” Benavente said.